Real Money

Rudolph Tech Breathes Easier

Its recent stock run-up helps the company sell its plan to merge with August Tech.

The merger agreement between Rudolph Technologies ( RTEC) and August Technology ( AUGT) remains under water, but Rudolph CEO Paul McLaughlin wants investors to know the deal has climbed closer to the surface.

August and Rudolph agreed in June to merge in a cash and stock deal worth $10.50 an August share at the time. That followed an $11 million payoff by August to Nanometrics ( NANO) to scuttle their existing merger deal.

Rudolph shares, which traded at $13.77 when the merger with August was announced, have become more valuable since then, climbing back above $15 on Thursday. "This is not the original $10.50 offer," said McLaughlin. "It depends on where our stock is."

For McLaughlin, this represents the increasing value that August shareholders will get if a merger with Rudolph is completed. Based on the deal's exchange ratios, August shares are now worth between $11.14 and $11.25 each. However, they're still below where the shares actually trade, even considering a seven-week pullback to $12.08.

August has been at the center of a bidding war all year as Nanometrics, then Rudolph, and then KLA-Tencor ( KLAC) have all sought to buy the chip equipment company.

August shares have continued to trade above the Rudolph offer as investors have anticipated more bidding. The main impetus is KLA-Tencor, the world's seventh-largest chip equipment company, which has said it will pay $11.50 a share in cash for August. KLA-Tencor has been quiet of late, but executives have repeatedly said their interest is serious.

But Rudolph and August executives say KLA-Tencor has yet to make an official offer for August. Rudolph and August maintain that their agreement represents excellent long-term value, regardless of where August's stock currently trades.

"From a shareholder perspective, there are a lot of definite things to look forward to," McLaughlin said, citing what would be the combined company's increased scale and competitive position and the general outperformance of small-cap semiconductor equipment stocks vs. large-caps.